Software Solutions

In our February 2005 edition of Home Health Products Jim Clark's Computer Software column ran incorrectly due to a printing error. We regret the printing error and apologize for the confusion. Here is the column as it was intended to run. —S.B.

It may take a significant investment in time and resources to reassess your accounts receivable processes, but the reward can be an immediate improvement in cash flow that lasts indefinitely. The dynamics of the industry's reimbursement processes are such that an unfocused approach may result in a significant loss in efficiencies and revenue opportunities.

As outlined in the January 2005 Home Health Products (See: Know Your Business and You'll Master Claims Processing), we identified the most common causes of denied claims, as well as how knowing your office workflow and payer mix directly affect your bottom line. Now it's time to make this knowledge work for you.

Billing and accounts receivable in the health care industry is as much an art form as it is a science. Like most rewarding skills, it takes thought and repetition to get it right. Just as professional athletes prepare and adjust before and between contests, so should your organization maintain a cyclical reimbursement review and improvement system. That system is called the A/R process.

No matter the size of the organization, someone must be the designated billing manager, even if they wear other hats. As volume increases, an effective accounts receivable process will requires more than one person. The billing manager's responsibility then becomes overseeing a team of claims entry, payment posting and collections staff, who should all share top and bottom line responsibility.

Role of the Billing Manager
Before the A/R process can be implemented, the role of the billing manager must be defined. For starters, your billing manager should be kept abreast of any potential legislation or coding changes that could affect how your claims are processed. Are they aware that in 2007 ICD-10 codes will be released, replacing the current ICD-9 coding system? Have they heard about the latest Medicare changes as they relate to the various classifications of medical equipment?

These may seem like obvious facts for a billing manager to know, but when you consider that these kinds of changes are constantly taking place it can become overwhelming to stay on top of all the information. Overcoming this issue is easier than what you might think. Industry publications such as Home Health Products can act as a resource for outlining current billing news and themes that may be of concern in the future.

There are other factors that the billing manager must evaluate on an almost monthly basis. Knowing your payer mix, for example, is imperative when you consider the effect the payer mix had on your company. Aside from telling you where your money is coming from, this information can save money and time when it comes to deciding to whom you should send claims. If your claim volume to one payer—Medicare for example—is noticeably larger than others, it may be in your best interests to submit claims directly to that payer rather than through a clearinghouse. If your volume warrants direct claim submission, the billing manager should know the advantages and disadvantages of doing so.

FIGURE 1.
The Good

  • Typically no per claim or monthly fees

  • Availability of electronic remittance notices (ERN) for automatic payment posting via ANSI 835

The Bad

  • Greater up-front costs

  • More than one connection to manage

Figure 1 outlines the most commonly mentioned points for and against direct claim submission versus the use of clearinghouses.

Additionally, office management software has advanced a great deal since its early days as DOS-based applications. As the complexities of industry legislation have grown, so, too, has the level of sophistication of medical software systems. Whereas previous versions had focused more on patient data storage, today's systems not only incorporate, but also focus on essential daily tasks such as office workflow and electronic claims processing (see Figure 2). It is for this reason that your billing manager be proficient with the billing software you have in place, or be given the authorization to at least research the software options that are available.

FIGURE 2.Benefits of Medical Software to the Billing and Collections Process

  • Improved claims management workflow and compliance

  • Improved efficiency in the entry, handling and follow-up of claims submission

  • Automatic posting of payments saves a significant amount of staff time

  • Security of claim details are heightened

  • Meaningful accounts receivable summaries and claim tracking reports can be generated with a greater degree of accuracy

The A/R Process
Now that the billing manager's responsibilities have been outlined, it is important to breakdown the A/R process, the methodology that can increase your business's current account and overall revenue generating activities. The A/R process is all about introducing internal audits and policies to catch errors prior to their submission as well as what to do with denied claims. The basis is formulated by an examination of a variety of variables, including your payer mix and the reimbursement patterns of your payers.

Create an A/R Management Team
Because of the complexities and differences in reimbursement rules of payers, it is beneficial to have more than one person focusing on the company's receivables. Therefore, the billing manager should establish a management team comprised of other office staff to review the receivables' status in the payment process. The team should consist of a small number people in addition to the billing manager, who should perform the bulk of the work.

A good way to handle this is to split the team into two groups based on the source of revenue. The first group would be charged with tracking money owed from payers while the other group should review your patients' financial obligations.

Generate Aging Reports
Knowledge is the key to any successful business, and knowing where you stand with regard to your receivables plays a key role in the process. A variety of aging reports should be run routinely—weekly reporting being the recommended interval—if your office utilizes a software management system. If not, ledger balancing should be closely monitored almost daily to account for daily changes to current account balances. Either way, reporting is key to identifying the trends and issues that may be resulting in reduced payables.

The billing manager should also run a variety of aged trial balances, which are a synopsis of all receivables. These include payer-specific summaries sorted by payer, payer type and patient obligation, as well as balance-specific summaries that detail receivables 60, 90, 120 and over 120 days past due.

Once these reports have been run, the appropriate members of the A/R management team should review the results and begin to isolate trends. For instance, if your cumulative patient receivables are unusually high—possibly due to non-payment of deductibles or co-payments—the company can immediately institute new collections policies that will alleviate the problem.

Establish Benchmarks
Benchmarks are extremely useful for assessing an organization's performance. Charting your receivables by percentage and days outstanding can give a good litmus test of your typical revenue cycles. However, businesses operating within their established benchmarks should never cease performing internal reviews. It is the continued adherence to the A/R process that reduces the chance of errors from arising in the future.

By far, the most telling gauge of a company's collections capabilities is days sales outstanding (DSO), which identifies the amount of time it takes to collect an average day's worth of revenues. The equation is fairly simple: calculate the average daily revenue by taking six months worth of billing and divide it by the number of days. Next, divide your total A/R balance by the average daily revenue. The higher the resulting number, the longer it takes for you to collect your receivables.

FIGURE 4.Displays the DSO calculation in mathematical format.
Average daily billings = Revenue from six months of billing/Number of days
DSO = Total A/R balance/Average daily billings

In addition to the DSO, other accounting benchmarks that should be considered are:

  • Provisional vs. actual bad debt

  • Amount of unbilled and held revenue

  • Daily average and monthly deposits

  • CMN tracking by number outstanding and aging by days

Internal Claims Review
In spite of safeguards you may have in place, you will always see denied claims. It is the number of denials that determines the effectiveness of your A/R process. Regardless of the manner in which you process your claims, you should always track claim submission errors. Setting up an internal claims review mechanism will help your company locate potential problems prior to sending your claims for adjudication.

There are two easy ways to perform this review. The first calls for the billing manager to maintain error logs that track internal mistakes. Remember, the objective is to prevent errors from recurring. The tracking logs can provide tangible proof of a continuous problem and can act as a tool for training other staff members of potential pitfalls. Without checks and balances in place to ensure accurate billing and reimbursement, the likelihood for lost revenues will always exist.

Medical software systems provide the second claims review option, as they oftentimes include what has come to be known as a claim scrubber. These scrubbers review claim details to check for faulty or incomplete information, such as an incomplete zip code, address or faulty insurance information. There are also advanced claim scrubbing features that can check the validity of the submitted codes. For example, some scrubbers will match the CPT/HCPCS code with the respective ICD-9, ensure claims are compliant with Medicare's front-end format requirements, or check claims for undercharging.

Procedural Audits
The fourth step of the A/R process is more of a procedural maneuver than any of the others. By establishing an auditing system, the A/R management team is ensuring the accuracy of the claims being submitted. The audits should also check on any recently implemented patient payment changes that may have started as a result of the second stage of the A/R process.

Another important component of the procedural auditing stage is a review of all accounts receivable. While reviewing reimbursements from every payer is the ideal scenario, the reality is that it is more practical to set thresholds for triggering an audit. Your company should determine a claim amount where you can get an accurate sampling of your overall claim volume per payer. This number can be as low as $100 or as high as $500, depending on the services your company provides.

When performing audits, your company should keep track of a few common trends, ranging from the time it takes to provide services to the time the claim has been submitted.

Additionally, you can monitor the time between the claim's submission and when you receive payment. Each of these trends can provide a good barometer of your claim processing timelines, as well as the claims' effects on your current account.

Effective Denials Management
The final stage of the A/R process deals with the claims that, for one reason or another, have been denied. It is important to note that just because a claim has been rejected does not mean it will never be paid. Denied claims require the same kind of follow-through as those submitted for the first time. In fact, it's believed that some 50 percent of all denied claims do not get followed up. The point is that companies who enforce their rights have fewer rejections than those that accept the denials.

Many businesses are simply too quick to accept the payer's evaluation as the final decision. It is the billing manager's responsibility to decide which claims should be written off and which should be appealed. The first thing to do is review the reasons given for the rejection. It could be that the claim was denied on a technicality due to improper coding, a problem that can be easily fixed and the claim resubmitted.

On the other hand, some denials may require more complex resolution, like a formal appeal. Your billing manager should be familiar with each payer's appeal process, as dictated by their contract with your company.

Failure to challenge denials is a mistake. Companies that implement an effective denials management process can not only resolve many of their denied claims issues, but also reduce the chances of rejections occurring again.

The following is a breakdown of what your company can do as part of your denials management process:

  • Create unique denial codes. These codes can help you track the rate and percentage of claims that are rejected for similar reasons. Over time, they also enable you to measure the success of your company's A/R process.
  • Establish follow-up processes. As previously stated, among the biggest mistakes a company can make is to write off rejected claims. By implementing a follow-up system your company could see an immediate increase in revenue due to improved claims processing.
  • Assign certain staff to specific tasks. The A/R process as a whole is too much for one person to handle; the same holds true for denials management. The billing manager should have members of the A/R management team assist with appeals of claim denials.
  • Automate as much as possible. Medical software systems can incorporate denials management as part of your office's workflow. From scheduling follow-up calls to generating reports based on ERNs, software packages can perform a variety of A/R tasks.

More Than Managing Your A/R
The A/R Process is often viewed as a necessary, but rarely implemented, business component. Whether it is the time involved or the resources required, companies ten to feel as though a full-scale claims review process will not yeild the necessary rewards to warrant its existence.

The A/R process is a systematic way to ensure your company receives as much revenue as it generates. It also puts in place a methodology that can prevent rejected claims, track and manage denied claims and cross-train other office staff in the event of the billing manager's absence. Those points alone should necessitate its implementation.

The health care industry is unique in that the primary source of payment for services rendered comes from third party payers. This leads to the complexity associated with proper collections. Picture this: assuming all things being equal between two identical companies the only variance is an exponentially higher profit margins. The difference is that one has a well-focused and successful A/R process. The other one just gets by.

This article originally appeared in the April 2005 issue of HME Business.

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